Conservation Easement Guide

[Terrel L. Shields]

This is a useful guide if you ever wanted to do these. They are quite profitable but the IRS is very likely to check it out.

https://www.uwyo.edu/law/centers/rural-law-center/conservation-easement-conference/weston%20cclt%20appraisal%20guide%206-01-04%20updated%2020101.pdf

 

[Elliott]

I've never done a "conservation" easement, though I've been asked, but I could never quite figure out how to value the rights that were given up. I see hundreds of acres of land that have no probability of being developed and then it gives up an easement worth hundreds of thousands of dollars and it still looks like hundreds of acres of land. I probably wouldn't have been very good at it.

A couple of things jumped out from the article:

"•Determines a before-easement property value, an opinion of the fair market value of a property unencumbered by the proposed easement (for example, the "before" value is $1,000,000); •Determines an after-easement property value, an opinion of fair market value of the same property, but now as encumbered by the easement (for example, the "after" value is $400,000); then •Subtracts the "after" value from the "before" to arrive at the estimate value of the conservation easement:

Before-easement value $1,000,000
After-easement value 400,000
Value of the conservation easement 600,000

----so that's how its done, so I guess now we can send the bill---

"5.What is a reasonable cost for a conservation easement appraisal? The costs associated with easement appraisals may vary widely, depending on property's location, the particular appraiser, the level of easement complexity and other factors. They can typically range between $5,000 and $20,000. Please note that is a general estimate only, and you will need to speak directly with your appraiser to determine a range of his or her fees.

----I'd think $10K sounds about right----

 

[Russ Kitzberger]

What is a reasonable cost for a conservation easement appraisal? The costs associated with easement appraisals may vary widely, depending on property's location, the particular appraiser, the level of easement complexity and other factors.

It is a good summary/guide.

A retained expert appraiser's fees will not be any surprise to the tax attorneys and accountants who will need to rely on the appraisal and the report to satisfy their professional duties to the client. In the middle of the country markets, those experts hourly rate is $350-450 per hour and $250-350 per hour respectively. If you are on one of the coast, double the rate for those professions. A bad appraisal can cost the client more in legal fees and fines than they could ever save by shopping around for an inexpensive appraiser rate.

This is a very good niche, however, there is far less work volume than lending, you also will be chasing sales data (title searching) and need to understand development potential in order to provide the before analysis competently.

 

[berniek]

This is a useful guide if you ever wanted to do these. They are quite profitable but the IRS is very likely to check it out.

https://www.uwyo.edu/law/centers/rural-law-center/conservation-easement-conference/weston%20cclt%20appraisal%20guide%206-01-04%20updated%2020101.pdf

This was one of our main topics when I was buying easements for the Southern Delivery System (SDS, Pueblo to Colorado Springs).

 

[Stone]

If you don't have experience doing them, take the three day course offered by ASFMRA - don't read a guide and think you are qualified to do these. Other orgs may still offer it, as well, I just happened to see that the ASFMRA had one listed recently. It was five days back when it first came out, but that was longer than I think it needed to be. Ideally, you should also try and work with someone who has experience in this area, or at least find someone to discuss how to approach the valuation aspects.

 

[Meandering]

And take some college level ecology classes.

There are more uses to land development that just putting up some homes or a Walmart.

Considering the rise in lumber prices and the need to create jobs, now might be the right time to see the domestic lumber trade pick up, and those silviculture tree plantings should really be looked at though the current lens of economics and political objective needs, coupled by the lack of forest management that was blamed for wildfires. There is a bigger push to take more land toward conservation, yet tree farming is land management and can win at both wars.

https://www.nhregister.com/opinion/article/Robert-Miller-Connecting-the-forest-dots-to-make-15761383.php

And if we're going to produce jet fuel from algae,
what better place to source the algae, than from swampland?

Take those ecology classes, they're more important now than ever before.

.

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[Terrel L. Shields]

Most of the time when I deal with an "conservation easement" it is a land tract encumbered by a long term lease or actual sale of the development rights. Tulsa buys such easements when possible in the watershed of their water source lakes. When sold I see the price of the land is usually depreciated by 25-33%. It is grazing land and/or woodlot in a watershed and won't be allowed to be developed for more than 1 home and poultry barns and any CAFO's (confined animal feeding operations) are prohibited. Thus, they cannot be developed. In rural property that's the main issue. Near town that might be a different matter.

I have also encountered them in Arkansas in a developed area and typically the property has been encumbered but is in small strips of land where the easement is just the flood zone. In fact, the easement seems to ADD not subtract value to the parcel since it prohibits development by the other development property owners. Like a giant HOA for conservation minded people.

 

[Zephyr999]

Due diligence is a mild term with these assignments...deep dig on familial ownership lands is one area that sets these apart...enhancement considerations.
IRS imposes different factors that are 'musts' within their official publications...IMO similar to Yellow Book guidelines.
I took the 5-day course/exam as a QEU alternative in 2012 in Michigan and had IRS officials also taking it...very helpful in understanding what the internal reviewer looks at. FYI, more than one CG was concerned about license sanctions after the first day.

 

[jay trotta]

Due diligence is a mild term with these assignments...deep dig on familial ownership lands is one area that sets these apart...enhancement considerations.
IRS imposes different factors that are 'musts' within their official publications...IMO similar to Yellow Book guidelines.
I took the 5-day course/exam as a QEU alternative in 2012 in Michigan and had IRS officials also taking it...very helpful in understanding what the internal reviewer looks at. FYI, more than one CG was concerned about license sanctions after the first day.

The Risk is out there, confidence, knowledge and preparation/presentation are a must. If one does a thorough job of research & development, you should feel confident in your end result. If not, don't get involved.
I do not do easements, but knew an old timer who mainly did those and he got hung out to dry on a Residential job over an; insulated glass window vs a single pane. He just happened to be in the wrong place at the wrong time and got swept into the mess that was taking place.

 

[Kali the Boston Terrier]

Nearly all of these are being audited by the IRS right now, and the ones that get audited will automatically refer the appraiser to a 6695a penalty...even if the IRS has no valuation to base this on. The consequences for these are way too steep right now, not enough of a fee will cover your legal costs and professional consequences...even if you do a good job.